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The Ensyder Nursing Home (ENH) is a zero growth firm with an EBIT of $250,000 and a corporate tax rate of 40 percent. ENH uses $1 million of debt financing, and the cost of equity of an unleveraged firm in the same risk class is 15 percent.
The personal tax rates of ENH's investors are 30 percent on interest income and 20 percent (on average) on income from common stocks.
a. What is the value of ENH according to MM with corporate taxes?
b. What is ENH's value according to Miller (including personal taxes)?
c. Suppose that the present value of financial distress costs is estimated to be $800,000, and that at a debt level of $1 million, ENH has a 20 percent probability of going bankrupt. What is the firm's value if these costs are added to the Miller model?
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The only way for behavioral patterns to persist in prices is if ______________.
Hopefully, this will all help us to learn together and as our week progresses. Please let me know if it does. Briefly explain what you understand by the accruals concept. Briefly describe the difference between a statement of cash flows and a cash fl..
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Victoria Adeleye Co. has the following data for the year ending 12/31/10: Net income = $600; Net operating profit after taxes (NOPAT) = $700; Total assets = $2,500; Short-term investments = $200; Stockholders' equity = $1,800; Total debt = $700; and ..
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